XYT Company engaged in a transaction that generated $50,000 cash deposited in the company bank account and required the company to pay $12,000 out of that account. XYT's marginal tax rate is 30%. Which of the following statements is false?

Question

Quizplus · Accepted Answer

If the deposit is taxable income and the payment is nondeductible, the transaction generated $35,000 after-tax cash flow. This is because the $50,000 deposit is subject to the marginal tax rate of 30%, which results in $15,000 in taxes. Therefore, the after-tax cash flow from the deposit is $35,000. The $12,000 payment is not deductible, therefore it does not affect the after-tax cash flow from the deposit.

A is true because if the payment is deductible, it reduces taxable income and results in a lower tax payment.

C is true because if the deposit is not taxable income, there is no tax payment and the after-tax cash flow is higher.

D is not a valid choice because only one statement is false, and that statement is B.

XYT Company Engaged in a Transaction That Generated $50,000 Cash